Whether Classification Can Be Altered Solely on CRCL Test Report and Beyond Scope of SCN? CESTAT Remands 71.57 Lakh Duty Dispute

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, has remanded a long-pending customs dispute directing fresh adjudication on classification, valuation, and eligibility for exemption under a Special Economic Zone (SEZ) notification. The bench of Somesh Arora (Judicial Member) and Satendra Vikram Singh (Technical Member) observed that the CRCL test reports clearly indicated that the imported goods did not meet the threshold of 85% textured polyester required for the originally declared classification. It observed that there was no contemporaneous challenge to the test report and that the importer’s request for retesting came more than a decade later, when samples were no longer available. The case pertains to the import of over 25,600 kg of synthetic fabric by the Kandla SEZ-based unit in 2003. The importer had classified the goods under a tariff entry applicable to fabrics containing 85% or more textured polyester filaments and claimed exemption under Notification No. 137/2000-Cus. However, laboratory testing by CRCL Kandla revealed that the fabric contained only 60–63.5% textured yarn, leading the department to dispute the classification and deny the exemption. The customs authorities initially provisionally assessed the goods and later finalized the assessment in 2007 by reclassifying the goods under a different tariff heading applicable to fabrics with lower polyester content. This resulted in a demand of differential duty amounting to ₹71.57 lakh, along with interest. The importer challenged the order, and the Commissioner (Appeals) set aside the assessment, citing violation of principles of natural justice, particularly the failure to supply the test report. Upon remand, the adjudicating authority reaffirmed the revised classification and enhanced valuation, but the Commissioner (Appeals) again ruled in favour of the importer in 2016. The Revenue then approached CESTAT. Accordingly, the Tribunal upheld the department’s classification of the goods under the alternative tariff heading applicable to fabrics containing less than 85% synthetic filaments. On the issue of valuation, the Tribunal found that while the department had rejected the declared transaction value and enhanced it based on comparable imports, the importer had not been provided with the underlying data or documents used for such re-determination. Emphasizing the need for transparency and adherence to customs valuation rules, the Tribunal remanded this aspect of the case, directing the adjudicating authority to furnish all relied-upon documents and grant the importer a fair opportunity to respond. A key issue in the dispute was whether the importer was entitled to duty exemption under Notification No. 137/2000-Cus., which applies to goods imported for authorized operations in an SEZ unit. The department argued that the unit was permitted only to process old and used clothing and lacked the infrastructure to manufacture garments from fresh fabric. It also alleged diversion of imported goods into the domestic market. The importer, however, contended that its Letter of Permission (LOP) allowed it to manufacture readymade garments from fabrics. The Tribunal noted ambiguity in the LOP issued by the Kandla SEZ authorities, observing that it failed to clearly distinguish between permitted raw materials and finished goods. It directed the adjudicating authority to seek clarification from the Development Commissioner regarding the scope of permitted activities and raw material imports. The Tribunal held that the adjudicating authority cannot go beyond the scope of the show cause notice. It rejected the Revenue’s attempt to rely on findings from a separate DRI investigation, including allegations of diversion and lack of manufacturing capability, as these were not part of the original notice issued for finalizing the assessment. The Tribunal criticized the casual drafting of the LOP by the SEZ authorities, stating that such permissions—having significant implications for duty-free imports—must be issued with clarity and precision to avoid litigation. The Tribunal allowed the department’s appeal by way of remand, directing the Deputy Commissioner to re-adjudicate the matter within six months after seeking clarification on the LOP from the Development Commissioner; reassessing valuation with proper disclosure of evidence; and providing the importer full opportunity to present its case. Case Details Case Title: Commissioner of Customs-Kandla Versus Om Siddh Vinayak Impex Pvt Ltd Citation: JURISHOUR-659-CES-2026(AHM) Case No.: Customs Appeal No. 11604 of 2016- DB Date: 07.04.2026 Counsel For Appellant: Girish Nair, Assistant Commissioner (AR) Counsel For Respondent: Paresh M Dave, Advocate with Shri Sudhanshu Bissa, Advocate Click Here To Read Order Read More: Excise Duty on Freight & Insurance in Door Delivery Sales Upheld: CESTAT

Whether Classification Can Be Altered Solely on CRCL Test Report and Beyond Scope of SCN? CESTAT Remands 71.57 Lakh Duty Dispute

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